On June 19, 2009, the Canadian Securities Administrators (CSA) published proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure (Proposed Rule), Forms 81-101F1 Contents of Simplified Prospectus and 81-101F2 Contents of Annual Information Form and Companion Policy 81-101CP Mutual Fund Prospectus Disclosure (the Companion Policy). New Form 81-101F3 Contents of Fund Facts Document is part of the Proposed Rule. The Proposed Rule and Companion Policy together are referred to as the Instrument.
The Instrument, along with related amendments, comprises the first phase of the CSA’s proposed approach to implement the shared vision of securities and insurance regulators to provide investors with more meaningful and effective disclosure of mutual funds and segregated funds, as described in Framework 81-406 Point of sale disclosure for mutual funds and segregated funds (Framework), which was published by the Joint Forum of Financial Market Regulators (Joint Forum) on October 24, 2008.
We discussed in a previous article the features of an initial proposal for the Framework, i.e., a point of sale disclosure regime, including a new fund summary document called ‘Fund Facts,’ delivery options, cancellation rights, and the regulatory requirements for preparing, filing and delivering the Fund Facts document. Under the initial Framework, the Fund Facts document was required to be delivered before the investor made the decision to buy any mutual fund.
Following a comment and consultation period, the Joint Forum published the Framework, which reflected modifications in certain respects of the initial Framework, including modifications in response to industry concerns about the potential preparation and delivery costs and disruptions to the sales process.
The Fund Facts document is central to the Instrument and to the Framework. The delivery requirements have been modified slightly from the initial Framework, but still provide for delivery at a time and in a way that allows investors to easily link the information they receive about a mutual fund to the purchase they are considering.
As under the Framework, the Instrument requires the Fund Facts document to be filed concurrently with the mutual fund’s simplified prospectus and annual information form. The certificate for the mutual fund applies to the Fund Facts, just as it applies to all documents incorporated by reference into the simplified prospectus.
The existing statutory rights of investors that apply for misrepresentations in a prospectus will apply to misrepresentations in the Fund Facts. As under the Framework, the Instrument contemplates replacing the current withdrawal and rescission rights under securities legislation with a single, harmonized two-day cancellation right for investors that applies to all mutual fund purchases. The purpose of the right is to give investors the reasonable opportunity to change their minds if they have been sold a mutual fund they do not really want. It is not intended to protect investors from a short-term decline in market value.
The Instrument contemplates a staged implementation, with the requirement to prepare and file the Fund Facts document becoming effective earlier than the new delivery requirements. The CSA currently propose a two-year transition period for delivery of the Fund Facts following the effective date of the Instrument. During this period, the Fund Facts document would not be required to be delivered to the investor, but would be required to be prepared, filed concurrently with the mutual fund’s next filed simplified prospectus and annual information form, and posted on the website of the mutual fund, mutual fund family or the manager.
The CSA have invited comments on the Instrument and related amendments by October 17, 2009.